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Management Strategic Management

Corporate Culture and Strategic Management

Module: 26, Corporate Culture and Strategic Management

Paper: 3, Strategic Management

Dr. Sudhanshu Joshi Head, School of Management, Doon University, Dehradun PIN 248001, Uttarakhand, INDIA

Dr. Anil Gupta Senior Assistant Professor University of Jammu, Jammu 180006.

Prof YoginderVerma

Pro–Vice Chancellor

Central University of Himachal Pradesh. Kangra. H.P.

Prof. S P Bansal Vice Chancellor

Maharaja Agrasen University, Baddi

Content Writer

Co-Principal Investigator

Paper Coordinator

Principal Investigator

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Learning Objectives:

The Learning objectives of the module are to explore relationship between corporate culture

and Strategies, to address the following questions:

1. What is the definition and Scope of Corporate Culture?

2. How does Corporate Culture affect the Strategic decisions of the firm?

3. To know the impact of competition on Corporate Culture.

4. To understand relationship between corporate culture and Competitive advantage.

1. Introduction

Managers perform the planning, organizing, directing, and controlling functions within the

context of the organization's culture. The term ‘Corporate Culture’ can be explained as

corporate DNA to communicate, coordinate focused to achieve organizational objectives

keeping in view the norms and values of the organization. In simple words, corporate culture

can act as an essential influential factor in analyzing organizations in various contexts. Its

importance to establish competitive advantages or its impact on organizational performance.

Success of organizations is not only determined by specific external conditions (viz. barriers

to market entry, rivalry in the industry, and supplier and buyer power), rather it is being

decided by company values. The broader scope of corporate culture is developed social

controls among individuals of the organization. In order to ensure the corporate culture to

become integrated part of corporate environment, organization needs to ensure culture

function should blend with the ongoing activities of the business.

The relationship between organizational culture and business strategy is important to

understand. The organizational culture creates powerful strategies and become its

competitive advantages in current competitive environment, then makes organizations and

companies successful.

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1.1. Importance of Culture

Firm’s culture is one of the important parts of the strategic thinking and it can impact on

company's employees, customers, suppliers and other different targets. The owner of the

company can create their own strategy on the alignment of unique organizational culture with

a competitive space. It also involves how organizational culture affects its strategic decision,

options and actions.

Following YouTube link explains the Need of Corporate Culture in a Business

https://www.youtube.com/watch?v=gficoigz1xs

The video highlights culture as a catalyst towards organizational productivity. It also depicts how

companies can use it to gain a competitive advantage. (Source: strategy-business.com)

1.2. What is corporate culture?

Corporate culture refers to the beliefs and behaviors that determine how a company's

employees and management interact and handle outside business transactions. Often,

corporate culture is implied, not expressly defined, and develops organically over time from

the cumulative traits of the people the company hires. A company's culture will be reflected in

its dress code, business hours, office setup, employee benefits, turnover, hiring decisions,

and treatment of clients, client satisfaction and every other aspect of operations.

Exhibit I : What Culture Is and Isn’t

An organization’s culture is complex. But it’s not hard to describe. It’s often explained as being “the

way we do things around here”— what goes and what doesn’t. 7 These behaviors reflect assumptions

about people and how they think and act, as well as values and beliefs shared by members of an

organization, whether or not they have been articulated. They are reinforced by artifacts—icons,

stories, heroes and heroines, rites and rituals—that remind people what an organization stands for,

such as IBM’s famous “THINK” signs or Walmart’s ubiquitous “ten-foot greeting.” Stories about

organizational heroes or “goats” provide added reinforcement. Finally, “the way we do things around

here” is backed up by efforts to measure behaviors and take some kind of corrective action when the

behaviors are unacceptable to other members of the organization. These assumptions, values,

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beliefs, behaviors, artifacts, measurements, and actions determine how things get done in an

organization. (Source: Haskett, 2011)

1.3 History of Corporate Culture

While awareness of corporate or organizational culture in businesses and other organizations

such as universities emerged in the 1960s, the term “corporate culture” was developed in the

early 1980s and widely known by the 1990s. Corporate culture was used at this time by

managers, sociologists and other academics to describe the character of a company, not only

through generalized beliefs and behaviors, but also through company-wide value systems,

management strategies, employee communication and relations, work environment, attitude,

and even company origin myths via charismatic CEOs, as well as visual symbols such asl

ogos and trademarks.

By 2015, corporate culture was not only created by the founders, management and

employees of a company, but also influenced by national cultures and traditions, economic

trends, international trade, company size and products produced. A well-cited historical

example of distinctions between corporate cultures is the traditional business practices of the

Japanese, and the American individualistic and entrepreneurial corporate culture of the

1960s.

There are a variety of terms that relate to companies affected by multiple cultures, especially

in the wake of globalization and the increased international interaction of today's business

environment. As such, cross culture refers to “the interaction of people from different

backgrounds in the business world”; culture shock refers to the confusion or anxiety people

experience when conducting business in a society other than their own; and reverse culture

shock is often experienced by people who spend lengthy times abroad for business and have

difficulty readjusting upon their return. To create positive cross-culture experiences and

facilitate a more cohesive and productive corporate culture, companies often devote in-depth

resources to combating the occurrence of the above, including specialized training that

improves cross-culture business interactions.

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2. Definition

2.1. Organization Culture (Corporate Culture): Organization culture refers to the unique

configuration of norms, beliefs, ways of behaving and so on that characterize the manner in

which groups and individuals combine to get things done.

It also can define that the set of important assumptions that members of an organization

share in common. There is other definition of the organizational culture involves assumptions,

adaptations, perceptions and learning.

Exhibit II : Organization culture of Walt Disney

Walt’s Disney has three layers of organization culture. First layer includes artifacts and creations, such

as annual report, a newsletter, wall dividers between workers and furnishings. Second layer includes

values, or the things that are important to people. The third layer is the basic assumptions that tell

individuals how to perceive, think about and feel about work, performance goals, human relationships

and the performance of colleagues. This becomes the three layer model of organizational culture.

2.2 Culture function: Culture functions are the function that exhibits cultural aspect of a

group of people with similar interests, backgrounds, and beliefs together while shaping their

views of the world. Culture strengthens bonds between people and can easily change and

evolve by adding new trends or removing old traditions. Culture function incorporate variables

including – Incentives and Integrity. Whereas, Incentives emerged as major strategic focus as

culture component that complement with traditional control systems and the term Integrity

define as holistic of the functions.

2.3. Cultural Values: Cultural values are the set of values the define firms’ past and present

standing. . Three common cultural characteristics are:

1. It should blend with the core philosophy of the business (social and commercial objectives

of the firm)

2. Synchronization with business environment of the firm (reshaping business processes as

per the business environment)

3. Cultivation of work culture across the levels of management

3. Elements of Corporate Culture

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The following are the elements comes under corporate culture

Vision: An inspirational description of what an organization would like to achieve or

accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for

choosing current and future courses of action.

1.1 Value: A company’s values are the core of its culture. While a vision articulates a

company’s purpose, values offer a set of guidelines on the behaviors and mindsets

needed to achieve that vision.

1.2 Practices: A method, procedure, process, or rule employed or followed by a company in

the pursuit of its objectives

1.3 People: No company can build a coherent culture without people who either share its

core values or possess the willingness and ability to embrace those values. That’s why

the greatest firms in the world also have some of the most stringent recruiting policies.

1.4 Narrative/Leadership: A company's leadership is composed of the top executives who

oversee its operations and plot its strategies for the future

1.5 Place: The term place signifies the geographical location where the plant location,

corporate office is located. Place is important from the perspective of operational and

strategic decision making.

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1.Vision:

a). From a simple mission statement to a

corporate manifesto, a company’s vision is a

powerful tool.

b). Corporate culture initiated/ started with a

vision or mission statement.

c) Good Vision Statement can help orient

customers, suppliers, and other stakeholders.

Example: Google’s modern and infamous

slogan: “Don’t Be Evil” is a compelling

corporate vision.

2.Values:

a). Value offer a set of guidelines on the

behaviors and mindsets needed to achieve the

vision.

b) Firm’s values are the core of its culture.

c) Embody the mentalities and perspectives

necessary to achieve a company’s vision.

Example: McKinsey & Company, for example,

has a clearly articulated set of values that are

prominently communicated to all employees and

involve the way that firm vows to serve clients,

treat colleagues, and uphold professional

standards.

3.Practices: a).‘Practical execution of values at work’ to

obtain results as per the firms’ vision.

b). "practices" are the tangible methods, guided

by ethics, through which a company

implements its values

c).“Practice” incorporate focus on market

orientation, establishing oneself as Knowledge

based, highly result oriented value driven

enterprise.

Example: Netflix emphasizes the importance

of knowledge-based, high-achieving employees

4. People:

a) The overall culture of company is the

reflection of the people involved in it.

b) No company can build a coherent culture

without involving people who either share its

core value

Example: GE includes people as the part of

core value and willingness.

5.Narrative/ Leadership:

a) Narrative is a core element of culture

creation.

b) The History of the organization can be

unearth and craft into Narrative.

Example: Coca-Cola, which dedicated an

enormous resource to celebrating its heritage

and culture.

6. Place:

a) The "place" of business, such as the city of

choice and also office design and architecture,

is also one of the most cutting-edge advents in

contemporary corporate culture.

Example: Pixar has simulated workplace where

firm members interact with each other in

informal, unplanned ways.

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There are other factors that influence culture. But these six components can provide a firm

foundation for shaping a new organization’s culture. And identifying and understanding them

more fully in an existing organization can be the first step to revitalizing or reshaping culture

in a company looking for change.

Beside to above listed six components significantly shape organization’s culture. There are

other factors that influence culture including, aassumptions, values, beliefs, behaviors,

artifacts, measurements, and actions—has its own properties.

4. Determinants of Corporate Culture

Various determinants define the scope and applicability of Culture of an organization,

including:

1.4 Organizational Structure – is the institutional framework that ensures activities including

task allocation, coordination and leadership to achieve organizational objectives. Various

High

Low

Visibility

Artifact

s

Behaviors

s

Measurement Artifacts

Benefits

Values

Basic Assumptions

Modest

Great

Difficulty of

Changing

Figure 1: Elements of Culture

Figure 1 shows one way of thinking about an organization’s culture and its components.

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properties coming under organizational structure are Power and authority structure,

pattern of information exchange and organizational roles.

1.5 Business Processes - A Business Process is a series of repeatable steps performed by

stakeholders with a definite goal. A specific event in a chain of

structured business activities.Examples of business processes include receiving orders,

invoicing, shipping products, updating employee information, or setting a marketing

budget.

1.6 HR Management and Compensation mechanism- Human Resource Management plays

vital role in a business organization. Since, among four Ms, i.e Men, Material, Machine

and Money, Men has been most important factor, it is impossible to imagine a business

process without Men. Compensation Management is concerned with the formulation and

implementation of strategies and policies that aim to reward people fairly, equitably and

consistently in accordance with their value to the organization. Overall strategic outlook

of the organization – Strategic outlook for a business firm includes vision statement,

Corporate Governance and Competitive advantage of the firm.

Strategy Vision, Governance,

Competitive advantage

Structure Power and authority, information

flow, organization roles

Human Resource Management

Hiring, work feedback, Learning

Reward System Compensation and

Reward

Business Processes and Lateral Links

Networks, processes

External Environment Internal Environment

Figure 2 : Determinants of Corporate Culture

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Figure 2 illustrate various determinants of Corporate Culture and their interlink age among

themselves.

5. Why Culture matters?

It is very important to understand that ‘why we should study culture and how culture influence

the overall performance of employees and firm respectively’. Corporate culture, like personal

character, is an amorphous quality that exerts a powerful influence. Therefore the Corporate

culture could be boon or bane for organizations as they ponder strategic and human resource

issues clearly, companies should analyze the leadership profiles of their own employees and

assess their organizations’ tolerance for divergent styles when considering mergers and

acquisitions or important external hires. Successful mergers between companies in which

employees displayed similar leadership styles or where the cultures tolerated different ones.

5.1 Culture’s role in organizational performance

Corporate Culture and strategy together decide the present and future performance of the

organization. Figure 2-1 depicts how corporate culture can blind with the strategic dimension

of the business. Various components of firm show one way of thinking about the relationship.

Shared assumptions regarding such things as the “right” customers, competitors, and

suppliers; communities to be served; the legal and regulatory environment; and people, work,

motivation, & the social environment influence elements of culture, strategy, and execution.

x

Shared Basic Assumptions

Regarding:

People -Work -Motivation -Social -Environment

Customer -Competitors -Suppliers -Communities -Legal & Regulatory environment

Influence:

Culture:

– Values – Beliefs – Behaviors – Artifacts

Execution – Organization –

compensation – controls – policies – practices

Competitive Strategy: – Target markets –

products, services – sources

of differentiation from competition

-Measurement -Action To Produce Organizational Performance

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Figure 2-2 Culture as “know how” (source: Heskett, 2011)

That explains why these basic elements of management typically have more overlap than

theory leads us to believe. Although extraordinary technologies or products may afford short-

term success, the degree of alignment between elements of culture, strategy, and execution

is a major factor in determining an organization’s long-term performance, as shown in Figure

2-2 .

5.2 Characteristics of Corporate Value

It is possible to change a company’s culture—or at least to prod it a bit in one direction or

another. That is best achieved by continually hiring people who represent the direction in

which you are headed. The set of characteristics (Table I) in a firm leads to reflect the

corporate value of it.

Table I: A Description of the Corporate Values

Know-How Shared Assumptions Shared

Values and Beliefs Behaviors

Measures* Actions* Artifacts “Know-Who”

Execution

Policies

Procedures Organization Incentives

Controls

Support Systems Measures

Actions

Know-Why

-Purpose

-Mission

“Know, What, When, Where”

-Strategy

Figure 2-1: Culture’s role in organizational performance (source: Heskett, 2011)

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Value Description

Integrity The organization does what is says it will do for members, and staff follow

through on promises; what is promised in a membership is delivered.

Fitness Staff is committed to their own fitness and the fitness of members; they value

the role of fitness in people’s lives, and know that it can make a difference.

Peak Attitude Staff are upbeat and energized

Innovation The organization has innovative fitness ideas, and staff tries to come up with

new ways of doing things.

Communication Information and education is easily accessible, and events, activities and

classes are communicated clearly; member are listened to and heard in the

organization.

Trust Members can count on staff to look after them; members trust that staff has

accurate information and knowledge, and they have confidence in staff ability.

Care The organization cares about its members and about its staff, and staff care

about members and about each other

Passion Staff is passionate about their job, and is dedicated to serving members.

Performance The organization has a long history of success, and is a leader in the industry

Strategic orientation can be categorized into six factors, namely, leading, future analytic,

aggressive, defensive, adventurous, and conservative. These orientations can be described

as follows: leading, always trying to innovate; future analytic, focusing on research for future

activities; aggressive, undercutting competitors; defensive, maintaining careful control;

adventurous, risk taking; and conservative, avoiding risk.

6. Impact of competition on Corporate Culture

Competitive business environment brings about changes in organizations and forces firms to

seek the strategies that will best enable them to gain or sustain a competitive advantage in

the marketplace. To continue growing, companies should adapt to environmental changes

and manage their employees to act consistently in reacting to that change. Thus, corporate

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strategies should balance external environmental realities with internal capabilities to

maximize corporate value.

There is a co-linkage between (a) organizational culture and identity; (b) organizational

strategy; (c) organizational design, structure, and processes; and (d) organizational behavior

and performance. Existing theories support this linkage at the Organization level.

Figure III : Existing theories that support Organizational Culture and Strategy Linkage

Figure III show that interlink age between Organizational Culture and Strategy Linkage.

Culture symbolized set of guiding principles and it equally affects the process of

operationalization. Culture indirectly influences Strategy, Organizational Structure and

Operations. Figure IV explains the overlapping between Organizational Culture, Strategy,

Structure and Operations using Organizational Culture Model

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Figure II: Organizational Culture Model

From Strategic perspective, corporate culture is defined as the pattern of shared values and

beliefs that help individuals understand organizational functioning and thus provide them with

norms for behavior in the organization. Corporate culture focuses on the underlying values

and attitudes that affect the way in which things are done. Strategic orientation ensured the

mapping of organization behavior with firm’s strategy. On the other hand, it is considered as a

controllable variable to increase organization’s overall performance. Like culture, strategic

orientation is considered to be a critical issue that may determine the success or failure of an

organization. This has particular implications for management, because strategic orientation

is also considered a controllable variable, and therefore it can improve the organization’s

overall performance.

Strategic orientation focuses on how firms should interact with external environments such as

customers, competitors, and technology to conduct business. The effectiveness of a firm’s

strategy depends on the fit between strategic choices and market dynamism.

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Figure III: Organizational Culture as Strategic tool (Source: HBR, 2011)

7. Corporate Culture and Strategic Advantage

There is a significant relationship between Return on Asset Deployed (ROA) and corporate

culture for both service and manufacturing sector. Corporate culture has pervasive effects on

non-financial aspects of an organization, and therefore its effects may be found at any point

in the relationship because it defines the organization’s employees, customers, competitors,

and suppliers, as well as the way in which all of these stakeholders interact. Cultures are

independent of geo-ethnic boundaries, and emerge through social transactions (i.e.,

patterned exchanges of material and immaterial items between individuals or groups). TCA

encourages multilevel explorations of complex social phenomena.

Case Study : Breaking down ‘Corporate Culture’ in Google

Google Inc. (GOOGL) is a company that is well-known for its employee-friendly corporate culture. It explicitly

defines itself as unconventional and offers perks such as telecommuting, flextime, tuition reimbursement, free

employee lunches, on-site doctors and, at its corporate headquarters in Mountain View, Calif., on-site services

like oil changes, massages, fitness classes, car washes and a hair stylist. Google's corporate culture has helped

it to consistently earn a high ranking on Fortune magazine's list of 100 Best Companies to Work For.